Thursday, March 11, 2010

How Open Source is like Almonds

There are a number of companies out there that repackage open source software. Many misunderstand how selling open source software is different from selling proprietary software,, so I thought I would make it into a metaphor.

Imagine that you had two retailers, one is Wal-Mart, the other is Target, and they shared the same parking lot. They both sell roasted almonds. The prices can be anything, really, but generally Wal-Mart is thought of as the place where you can buy things for less, and Target is where people go to buy something that they know to be of decent quality. That is, people are willing to pay a little more at Target than they are at Wal-Mart because they trust the retailer. In fact, the almonds are exactly the same, but the perception is that I can get better brands and perhaps better service at Target so I'll pay a little more there.

Enter ABC Almond Company. ABC operates out of a tent that's positioned right between Target and Wal-Mart. They offer honey-roasted almonds. Of course, their product is a little different from what you can get elsewhere so there's a significant premium paid for these honey-roasted almonds.

Oddly, though customers are a little more trusting of Wal-Mart and Target than ABC, they aren't buying from any of the three. Why? Well, the parking lot has many trees to provide shade. The trees are almond trees. Customers can pick the almonds themselves for free, sort them for quality, and cook them any way that they wish. In fact, all three stores are selling almonds from those trees.

Customers willing to pay something to have it done for them go to Wal-Mart, and those that are picky about quality will shop at Target. Very few visit the ABC tent despite the fact that they're honey-roasted because they just don't recognize the ABC brand.

So ABC gets a bright idea -- they can sell their almonds through Target. Though it does increase their sales (if Target is carrying it, it must be good quality), they still aren't covering expenses. Why? Well, besides the fact that you can pick them yourself, there's still vigorous competition from Wal-Mart. Customers can buy them for less over there and add their own honey flavoring. Target still has the largest share of the three vendors because of the respect commanded by the brand, but since both Target and Wal-Mart attract value-sensitive consumers, most customers prefer to pick their own almonds.

Open source software is a lot like almonds. The many startups that have tried to repackage open source software are most like ABC. Target and Wal-Mart represent major brands like IBM, Red Hat, SuSE, Microsoft, etc.

To truly make it, software companies like ABC need both brand trust and a product that's both valuable and hard to duplicate. "Almond extract," for example, is not that easy to make, but would still sell better at Target and Wal-Mart than the ABC tent. ABC Software would need to sell the software equivalent through one of those established vendors to truly get some business.

Update: Keep in mind that like scrubbing open source for bugs, picking almonds is not easy either. You have to knock them down and their shells are very hard. Customers usually choose open source not realizing how much work is required. The perception is, however, that it's easy and the reseller doesn't add much value. It's like how Eleanor Powell made tap dancing look easy, or how judges are so critical of ice skaters' performance when they fail to deliver a quadruple-axle midair spin. Open source professionals are quite skilled at taking raw code and improving reliability, but until it looks hard, they won't get much credit.